Constitutional Nonsense? the ‘Unenforceable’ Fiscal Responsibility Act 1994, the Financial Management Reform, and New Zealand’S Developing Constitution
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CONSTITUTIONAL NONSENSE? THE ‘UNENFORCEABLE’ FISCAL RESPONSIBILITY ACT 994, THE FINANCIAL MANAGEMENT REFORM, AND NEW ZEALAND’S DEVELOPING CONSTITUTION CHYE-CHING HUANG* ‘Once again, in promoting this legislation New Zealand leads the world. This is pioneering legislation. It is distinctly New Zealand – style.’ (22 June 1994) 541 NZPD 2010 (Ruth Richardson) ‘[It] is constitutional nonsense. The notion that this Parliament will somehow bind future Governments on fiscal policy…is constitutional stupidity.’ (26 May 1994) 540 NZPD 1143 (Michael Cullen) The Fiscal Responsibility Act 1994 (the ‘FRA’) was part of New Zealand’s Financial Manage- ment Reform, a reform said to have introduced new values – efficiency, economy, effectiveness and choice – into the law.1 The FRA is peculiar because the courts may not be able to enforce it. Despite this, the authors of the FRA expected it to impact profoundly on the thinking and behav- iour of the executive, Parliament, and the electorate.2 The debate about how the FRA has affected the executive, Parliament, and the electorate con- tinues.3 Yet no one has analyzed thoroughly how the FRA has affected – or might affect – judicial reasoning.4 This article attempts that analysis, and concludes that the FRA may have profound legal and even constitutional effects, despite being ‘unenforceable’. The finding that the FRA may have legal and constitutional effects could be useful for two reasons. First, the FRA’s constitutional effects suggest that judicial reform of the constitution may tend to privilege the neo-liberal values that the Financial Management Reform wrote into law. Parliamentary sovereignty could be said to encourage a free and contestable market place of ideas, but this supposed strength may be paradoxically used to legally entrench values. Secondly, the FRA’s legal and constitutional effects may explain why proposals for ‘responsi- bility’ legislation have proliferated. By 1995, the Labour Party had promised to reframe the prin- * BCom LLB (Hons), University of Auckland; LLM, Columbia; currently engaged in Federal Fiscal Policy Research in Washington DC. 1 Geoffrey Beresford, ‘The Processes of Constitutionalism in New Zealand and the United Kingdom’ (2005) 1 New Zealand Postgraduate law e-Journal 2. 2 Ruth Richardson, ‘Opening and Balancing the Books: The New Zealand Experience’ (1994) 75 Parliamentarian 244, 246. 3 Roger Kerr, ‘The Fiscal Responsibility Act: A Stocktake’ (Paper presented at CONFERENZ 8th Annual Public Sec- tor Finance Forum, Wellington, 23 September 2004). 4 The author is aware of only one legal academic work published since 1995 that has the FRA as its primary subject: Mark Robinson, ‘Can fiscal responsibility legislation be made to work?’ (1996) 3 (4) Agenda 419. 2008 Constitutional Nonsense? The ‘Unenforceable’ Fiscal Responsibility Act 1994 265 ciples of the FRA to meet ‘sound economic and constitutional principles’.5 In 1998 the Charter of Budget Honesty Act (Cth), a statute modeled on the FRA,6 was enacted in Australia. In 2001, the New Zealand Business Roundtable7 published a draft ‘Regulatory Responsibility Act’.8 In January 2005, the Labour-led Government made front page news by announcing that it intends to pro- pose a ‘social reporting law’ that will be the ‘equivalent of the Fiscal Responsibility Act’.9 Less than two months later the ACT party released its policy of introducing a Regulatory Responsibil- ity Act.10 There have also been calls for a ‘Social Responsibility Act’,11 a ‘Treaty Responsibility Act’12 and an ‘Infrastructure Responsibility Act’.13 Some promoters of ‘responsibility Acts’ may see the potential for such statutes to influence the development of New Zealand’s constitution. The FRA was repealed on 25 January 2005, but its substance was simultaneously re-enacted as part of the Public Finance Act (the ‘PFA’).14 This move was characterised as a merely techni- cal and administrative consolidation of the law governing the use of public financial resources.15 This article refers to the stand-alone FRA rather than to the PFA. Commentary and case law to date generally refers to the FRA. This also follows what appears to be an emerging common prac- tice: even after the FRA was subsumed by the PFA, commentators have continued to refer to the FRA when speaking about the fiscal responsibility provisions of the PFA.16 The footnotes refer to equivalent sections of the PFA. Part One of this article describes the FRA, and Part Two tries to establish that the FRA is unenforceable. Part Three suggests that the FRA nevertheless has legal and constitutional effects, and Part Four connects these findings to broader constitutional developments. 5 Jane Kelsey, The New Zealand Experiment - A World Model for Structural Adjustment? (1995) 310. 6 Charter of Budget Honesty Act 1998 (Cth); Robinson, above n 4, 427-428. 7 ‘[A]n organisation comprising primarily chief executives of major business firms committed to contributing to the development of sound policies that reflect overall national interests. It is founded on the belief that a healthy, dynamic business sector and open and competitive markets are fundamental to the achievement of a prosperous economy and fair society.’ New Zealand Business Roundtable, <http://www.nzbr.org.nz/statement_of_purpose.asp> (at 18 March 2006). 8 Bryce Wilkinson, Constraining Government Regulation (2001). 9 Ainsle Thomson, ‘Govt plan for annual ‘social report’’, The New Zealand Herald, Auckland, New Zealand, 25 Janu- ary 2005, A1. 10 Rodney Hide, ‘ACT’s Plan to Cut Red Tape’ (Speech delivered at New Zealand Large Herds Association Confer- ence, Christchurch Convention Centre, Christchurch, 19 April 2005). 11 Jonathon Boston, ‘The Idea of a Social Responsibility Act for Aotearoa/New Zealand’, in Michael O’Brien (ed), Social Responsibility: Whose Agenda? Proceedings of Conference (1998) 13. 12 Thomas Bennion and Geoffrey Malvin, ‘Assessing Performance’, [1994] The Mäori Law Review 1, <http://bennion. co.nz/mlr/1994/jul.html> (at 27 April 2006). 13 Interview by Paul Henry with Chris Olsen, Auckland’s Transport Infrastructure’, (TVNZ, Breakfast Programme, Auckland, 27 April 2005) <http://tvnz.co.nz/view/video_popup_windows_skin/707148>, (at 27 April 2006): ‘I have heard some of the Auckland mayors talk about the possibility of having an Infrastructure Responsibility Act, which would be would be very similar to the Fiscal Responsibility Act’. 14 Public Finance Amendment Act 2004 s 37(2). 15 Public Finance Act 1989, s 1A, inserted by Public Finance Amendment Act 2004, s 4. For an examination of this characterisation, see Chye-Ching Huang, ‘The Repeal and Resurrection of Responsibility’ (2005) 11 Auckland Uni- versity Law Review 230. 16 Olsen, above n 13. 266 Waikato Law Review Vol 16 I. FEATURES OF THE FRA 994 During New Zealand’s Financial Management Reform the reformers put selected neo-liberal eco- nomic theories17 into practice in a relatively undiluted form.18 Also known as the New Zealand Experiment,19 or ‘Rogernomics’ and ‘Ruthanasia’20 the Financial Management Reform was a radi- cal structural adjustment.21 It transformed New Zealand from ‘the first welfare state to the first post-welfare state’,22 from ‘fortress New Zealand to free market’,23 and from a ‘politically inter- ventionist economic management to a more market-led type of economic management’.24 The Fourth Labour Government began the transformation, and the succeeding National Government continued it.25 The National Government passed the FRA by majority on 22 June 1994, arguably in order to address the concerns of ‘public choice theory’.26 Public choice theory predicts that self-interested government actors tend to pursue fiscal policies that are not in the best interests of the wider com- munity.27 In line with public choice theory, Treasury considered that before the FRA, ‘short-term fiscal thinking, driven by influential groups and electoral politics, was biased against sound eco- nomic principles’.28 A 2004 Business Roundtable review of the FRA took a similar view:29 The quality of fiscal policy deteriorated during the 1970s and ‘80s. Government spending mushroomed; the tax system became distorted and inefficient …. The incoming Labour government did much to im- prove fiscal policy, especially through sound tax reforms, but it struggled to achieve fiscal discipline…. In response to this haphazard record, the architects of the FRA, notably finance Minister Ruth Richardson, sought to bring a greater focus in annual budgets to issues of fiscal prudence and longer-term strategy. 17 Kelsey, above n 5, 1. 18 Beresford, above n 1, 11. Public choice theory, agency theory and transaction-cost economics, and the new public management were particularly influential: Boston, Public Management: the New Zealand Model (1996) 16. 19 Marcia Russell, Revolution: New Zealand From Fortress to Free Market (1996) 9. 20 After successive Ministers of Finance Roger Douglas and Ruth Richardson. 21 Kelsey, above n 5. 22 Russell, above n 19. 23 Ibid. 24 (26 May 1994) 540 NZPD 1146 (John Robertson). 25 Commonwealth Secretariat, Current Good Practices and New Zealand Developments in Public Service Management: A Profile of the Public Service of New Zealand (1995) 2. 26 For a brief overview of the development of public choice theory, see James Buchanan, ‘Public Finance and Public Choice’, National Tax Journal 28 (December 1975), 383. 27 Boston, above n 18. 28 Kelsey, above n 5, 233. Scott explains how such analysis draws on public choice theory; Graham Scott ‘New Zea- land’s Fiscal Responsibility